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Overcoming Poverty Is Not A Gesture of Charity
Overcoming Poverty Is Not A Gesture of Charity
Government benefit programs have helped you cover rent, utilities, and food, but
you're barely getting by. Finally, you hear back about a job application. You
receive your first paycheck in months, and things seem to be turning around. But
there’s a catch. Your new job pays just enough to disqualify you from the benefit
programs, and not enough to cover the same costs. To make things worse, you
have to pay for transportation to work, and childcare while you’re at the office.
Somehow, you have less money now than when you were unemployed.
Economists call this demoralizing situation the welfare trap— one of the
many different poverty traps affecting millions of people around the world.
themselves, perpetuating poverty for generations. Some poverty traps are tied to
Others can affect entire nations, such as cycles of corrupt government or climate
change. But the cruel irony of welfare traps in particular is that they stem from the
in poverty meet basic needs. Before the 20th century, religious groups and
private charities often led such initiatives. Today, these are called welfare
programs, and they usually take the form of government-provided subsidies for
housing, food, energy, and healthcare. Typically, these programs are means-
tested, meaning that only people who fall below a certain income level are eligible
for benefits. This policy is designed to ensure aid goes to those who need it most.
But it also means people lose access as soon as they earn more than the
qualification threshold, regardless of whether or not they're financially stable
Mainstream economic models assume people are rational actors who weigh the
cost and benefits of their options and choose the most advantageous path
forward. If those in poverty know they'll gain no net benefit from working, they're
many reasons, including societal norms and personal values. But income is a
major incentive to pursuing employment. And when less people take on new jobs,
the economy slows down, keeping people in poverty and potentially pushing
neither realistic nor humane. So how can we redesign benefits in a way that
doesn't penalize people for working? Many countries have tried different ways to
circumvent this problem. Some allow people to continue receiving benefits for a
given period after finding a job, while others phase out benefits gradually as
income increases. These policies still remove some financial incentive to work,
but the risk of a welfare trap is lower. Other governments provide benefits like
universal basic income would provide a fixed benefit to all members of society,
regardless of wealth or employment status. This is the only known policy that
could entirely remove welfare traps, since any earned wages would supplement
the benefit rather than replace it. In fact, by creating a stable income floor below
which no one can fall, basic income might prevent people from falling into poverty
18th century. But for now, universal basic income remains largely hypothetical.
Although it's been tried in some places on a limited scale, these local
experiments don’t tell us much about how the policy would play out across an
create long-term change in their lives and communities can we begin to break the
cycle of poverty.